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January 2010

Short-term interest rates, as set by the Bank of Canada, remained unchanged in the quarter, with the key lending rate holding steady at 0.25%.

In early December, the central bank reiterated its commitment to maintain the current policy rate until the end of the second quarter of 2010. In this historically low interest rate environment, the DEX 91 Day T-Bill Index returned 0.1% in the quarter, and was up 0.6% over the year.

The Savings Fund provided a return of 0.0% in the quarter, and 0.5% over the past 12 months.

While caution remains the buzz word, the Bank observed slightly more positive economic developments in the quarter and a modestly improved global outlook. Inflation remains low and within the projected range, enabling the Bank to keep rates at rock bottom levels.

There were few changes to the structure of the fund in the quarter. As some corporate paper matured, the manager, CC&L, added a little more bank-sponsored asset-backed commercial paper (ABCP) to the portfolio. This paper currently offers a yield advantage of 20-25 basis points (0.20%-0.25%) over government T-Bills.

By and large, however, there hasn’t been much opportunity to add value. It’s worth repeating that the key objective of the fund is capital preservation, and CC&L will not compromise this by stretching for yield. Money market investors will thus be relegated to low returns until we see a change in the Bank of Canada’s policy.

The pre-fee yield of the fund at the end of December stood at 0.3%. Because of the low yield, we further temporarily reduced the fee on the fund in November to help provide a positive yield for unitholders.